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Len Penzo dot Com

The offbeat personal finance blog for responsible people.

100 Words On: Why You Should Never Cosign A Loan for Anyone

By Len Penzo

Cosigning for a loan is one of the dumbest financial moves you could ever make. By cosigning, you not only assume liability for the borrowed money, but you also make it tougher on yourself to qualify for large loans — regardless of your payment history — because lenders still include cosigned loans as part of your overall debt load.

The bottom line: If a lender refuses to loan money to somebody because their credit history strongly suggests they’d eventually default, why would you ever agree to recklessly risk your good credit rating by putting it in the hands of that same person?

Photo Credit: Ardyiii

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20 Comments March 2, 2017

Comments

  1. 1

    Doable Finance says

    You think you know someone but in reality you don’t. I have always stayed away from cosigning.

    Reply
  2. 2

    Carthell says

    Yeah, my family was burned twice:

    -My brother went to jail. He called my mom in a panic over an alleged threat to his life. Five people co-signed his bail premium, and it all fell on me and my mom. Him: “I can’t pay this.” No thank yous, not a card, nothing. Put a virtual big finger in both of our faces.

    -Aunt needed help with purchasing a used car. She’s with a stable employer, she seems right with the bills (thst she showed me). Two years later, the collectors are calling me every few seconds. Call to aunt: “They’re telling me that you’re ignoring their calls! When are you going to do something about this?” *Click*. When we see each other, the atmosphere immediately gets strained. She knows not to ask me anything related to money. I suppose my grandmother was saved this humilation because she had never opened a credit line in her life.

    Reply
  3. 3

    Bret @ Hope to Prosper says

    I hear the default rate for a cosigned loan is around 85%. Those are some pretty bad odds.

    The couple across the street cosigned for their daughter’s new car. Now, they are driving it.

    Reply
  4. 4

    Lola says

    My aunt and uncle cosigned for their eldest son’s home loan many years ago. I think he stopped making payments after about 6 months. To this day, they still suffer the repercussions from that, yet in their eyes, the son can still do no wrong. My aunt and uncle didn’t learn their lesson, but my parents learned from their folly: there was never any chance of my parents cosigning for me or my siblings, not for a house, a car, or even a credit card. We grew up knowing that it better be a DIRE emergency if we asked our parents for money!

    Reply
  5. 5

    Cherleen @ My Personal Finance Journey says

    I can get involved my friends’ issues on love, health, and family but not money matters. I have seen a lot of friendships ruined because of money. I do not cosign because I do not want to ruin my relationship with my friends.

    Reply
  6. 6

    April at Albuquerque CPA says

    This is quite true. Money is a sensitive issue and can make people change. So it is better to stay out of trouble by not agreeing to co-sign.

    Reply
  7. 7

    Jason @ UK Credit says

    I agree, getting close friends, family members or colleagues in is a risk especially if you have a history of missed payments and financial problems. You may think you’ll never require your cosigner to make a payment, however sudden emergencies such as a broken down vehicle or household appliance may mean you are no longer in a situation to make that payment.

    Reply
  8. 8

    lumphead says

    i cosigned for a house with my sister who immediately started making the payments late…and for some strange reason she thinks I don’t like her…..

    Reply
  9. 9

    Special Ed says

    It’s very simple. If someone needs a cosigner due to a history of missed/late/non payments, a friend or close family member cosigning for them does not change the attitude that some things are more important than paying your debts. There will always be an excuse to not pay.

    Reply
  10. 10

    Crystal says

    I’ve given small, yet significant money out to friends (and even people I barely knew twice). I just never expect to see it again and am delighted when I do. I wouldn’t co-sign a loan…no one gets to screw with my credit except me, LOL.

    Reply
  11. 11

    Ellis says

    If they need a co-signer, they are a bad risk. If they are a bad risk for a giant bank, they are a worse risk for me.

    I saw two relatives have their relationship destroyed, along with creating a
    major family rift, when one ran out on a large loan, sticking his brother with the bill.

    Reply
  12. 12

    RD Blakeslee says

    As with all edicts, there are exceptions.

    When my son decided his “education” at a party-college wasn’t worthwhile, he returned home and eventually started a house building enterprise.

    Our friendly local banker wouldn’t lend him anything on his own signature, though.

    Since I was convinced he was of good stock and well brought up ….

    http://lenpenzo.com/blog/id22017-how-i-live-on-less-than-40000-annually-ralph-from-west-virginia.html

    .. .I co-signed a loan for him.

    He progressed from that to restoring and renting decrepit houses (building some new ones, too), to students at a medical college in a nearby town and is now worth millions.

    Reply
    • 13

      Len Penzo says

      Great story, RD. Thanks for sharing that!

      Reply
      • 14

        RD Blakeslee says

        You and your readership are welcome, Len.

        Your blog is one of the few that looks at the micro-economy each of us creates for our self.

        I often cite something from here to balance the jeremiads commonly found on the “macro” sites.

        Reply

Trackbacks

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